Press Release

ConnectOne Bancorp, Inc. Reports First Quarter 2020 Results

Company Release - 4/30/2020 7:00 AM ET

ENGLEWOOD CLIFFS, N.J., April 30, 2020 (GLOBE NEWSWIRE) -- ConnectOne Bancorp, Inc. (Nasdaq: CNOB) (the “Company” or “ConnectOne”), parent company of ConnectOne Bank (the “Bank”), today reported net income of $6.0 million for the first quarter of 2020 compared with $20.8 million for the fourth quarter of 2019 and $11.6 million for the first quarter of 2019. Diluted earnings per share were $0.15 for the first quarter of 2019 compared with $0.59 earned in the fourth quarter of 2019 and $0.33 earned in the first quarter of 2019. The decrease in net income and diluted earnings per share from the fourth quarter of 2019 was primarily due to an increase in provision for loan losses of $15.5 million substantially due to the economic uncertainties caused by the COVID-19 pandemic. On January 2, 2020, the acquisition of Bancorp of New Jersey (“BNJ”) was completed and thus first quarter 2020 results reflect the operations of the combined entity. Historical financial information includes only the operations of ConnectOne, pre-merger. Included in net income were merger expenses of $9.5 million for the first quarter of 2020, $0.9 million for the fourth quarter of 2019 and $7.6 million for the first quarter of 2019. On a pre-tax, pre-provision and pre-merger charges basis, earnings were $32.6 million for the first quarter of 2020, $28.4 million for the fourth quarter of 2019, and $26.2 million for the first quarter of 2019.

Frank Sorrentino, ConnectOne’s Chairman and Chief Executive Officer stated, “ConnectOne continues to navigate through this unprecedented time. While our priorities are the safety of our employees and supporting our clients through these challenging times, we continue to execute on all our business strategies. As a technology-forward bank, our operations and teams have transitioned quickly to offering essential banking services virtually. Our business is functioning well and I’m proud of the resiliency of the ConnectOne team as we’re using the full range of our Company's banking expertise to help clients.”

“We’ve also continued to be a resource to the communities we serve by actively participating in the SBA’s Paycheck Protection Program (the “PPP”). ConnectOne expects to fund a total of approximately $385 million in the initial PPP tranche. Additionally, there are over 1,000 new applications being processed for the second PPP tranche. Furthermore, our FinTech subsidiary BoeFly – which connects small- to mid-sized businesses to a network of financial lenders – has participated in the PPP in a meaningful way, agenting upwards of $750 million and potentially and significantly increasing its relationships with borrowers and banking partners.”

Mr. Sorrentino added, “While our first quarter results were affected by the current economic environment, we were pleased with our strong overall financial performance notwithstanding the increase in COVID-related reserves. We’re operating ConnectOne in a disciplined manner, continue to watch credit and remain well-positioned to leverage our experience, our solid financial position and our relationship-focused banking model during this crisis.”

Operating Results

Fully taxable equivalent net interest income for the first quarter of 2020 was $55.8 million, an increase of $7.9 million, or 16.4%, from the fourth quarter of 2019, resulting primarily from an 16.3% increase in average interest-earning assets and a 5 basis-point widening of the net interest margin to 3.41% from 3.36%, both resulting largely from the BNJ acquisition. Included in net interest income were purchase accounting adjustments of $3.5 million during the first quarter of 2020 and $1.5 million during the fourth quarter of 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.20% for the first quarter of 2020 and 3.26% for the fourth quarter of 2019. The adjusted net interest contracted as a result of higher cash balances and from the BNJ acquisition. The adjusted net interest margin contraction resulting from the BNJ acquisition was mitigated through securities portfolio restructuring and deposit rate reductions effected toward the end of the first quarter of 2020.

Noninterest income increased to $2.9 million in the first quarter of 2020 from $2.2 million in the fourth quarter of 2019 and $1.7 million in the first quarter of 2019. The increases in noninterest income for the sequential quarter were primarily attributed to increases in net gains on equity securities of $0.2 million, increases in net gains on sale of loans held-for-sale of $0.2 million and increases in deposit, loan and other income of $0.1 million.

Noninterest expenses totaled $35.2 million for first quarter of 2020, $22.2 million for the fourth quarter of 2019 and $28.1 million for the first quarter of 2019. Included in noninterest expenses were merger related expenses totaling $9.5 million, $0.9 million and $7.6 million, during the first quarter of 2020, fourth quarter of 2019 and first quarter of 2019, respectively. Excluding merger-related expenses, noninterest expenses increased by $4.2 million from the fourth quarter of 2019 due primarily to increases in salaries and employee benefits of $1.7 million, occupancy and equipment expenses of $1.1 million and other expenses of $0.6 million. These increases are primarily due to the expansion of our franchise through the BNJ acquisition and reflect approximately one-third of projected cost saves, which are estimated to be approximately 70% of BNJ’s expense base.

Income tax expense was $1.1 million for the first quarter of 2020, $6.2 million for the fourth quarter of 2019 and $2.5 million for the first quarter of 2019. The effective tax rates for the first quarter of 2020, fourth quarter of 2019 and first quarter of 2019 were 15.1%, 23.0% and 17.6%, respectively. The decrease in the effective tax rate for the current quarter from the sequential quarter was due to a larger proportion of income from nontaxable sources.

Asset Quality

In accordance with the accounting relief provisions of the CARES Act, the Company has postponed the adoption of the current expected credit losses (“CECL”) accounting standards as permitted under regulatory guidance. Management reached this decision due to the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resulting from the COVID-19 pandemic. Had the Company adopted CECL as of January 1, 2020, the increase to its allowance for loan losses for “Day 1” implementation would have ranged from $4 million to $14 million, excluding the re-allocation of an additional $8 million of non-accretable purchase credit-impaired marks.

The provision for loan losses was $16.0 million for the first quarter of 2020, $0.5 million for the fourth quarter of 2019 and $4.5 million for the first quarter of 2019. The increase in the loan loss provision in the first quarter of 2020 was largely due to the economic uncertainties of COVID-19, including consideration of related payment deferrals requested and/or granted to date.

Nonperforming assets, which includes nonaccrual loans and other real estate owned, were $62.4 million at March 31, 2020, $49.5 million at December 31, 2019 and $47.7 million at March 31, 2019. Included in nonperforming assets were taxi medallion loans totaling $23.0 million at March 31, 2020, $23.4 million at December 31, 2019 and $27.3 million at March 31, 2019. Nonperforming assets (including taxi medallion loans) as a percentage of total assets were 0.86% at March 31, 2020, 0.80% at December 31, 2019 and 0.79% at March 31, 2019. Excluding the taxi medallion loans, nonaccrual loans were $39.3 million at March 31, 2020, $26.1 million at December 31, 2019 and $20.4 million at March 31, 2019, representing a ratio of nonaccrual loans (excluding taxi medallion loans) to loans receivable of 0.66%, 0.51% and 0.41%, respectively. Nonaccruals increased $13.3 million from December 31, 2019 primarily due to a commercial construction relationship of $11.4 million that is well-secured. The annualized net loan charge-off ratio was 0.01% for the first quarter of 2020, 0.08% for the fourth quarter of 2019 and 0.21% for the first quarter of 2019. The allowance for loan losses represented 0.90%, 0.75%, and 0.74% of loans receivable as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively. The allowance, currently excludes approximately $8 million of purchase accounting credit marks that are expected to be added to the allowance once CECL is implemented, resulting in an additional 13 bps to the allowance as a percent of loans ratio. The allowance for loan losses as a percentage of nonaccrual loans, excluding taxi medallion loans, was 137.7% as of March 31, 2020, 147.0% as of December 31, 2019 and 180.7% as of March 31, 2019.

Selected Balance Sheet Items

At March 31, 2020, the balance sheet reflected the acquisition of BNJ. The Company’s total assets were $7.3 billion, an increase of $1.1 billion from December 31, 2019. Loans receivable were $6.0 billion, an increase of $896 million from December 31, 2019. The increase in total assets and loans receivable were primarily attributable to the acquisition of BNJ. The Company’s stockholders’ equity was $854 million at March 31, 2020, an increase of $123 million from December 31, 2019. The increase in stockholders’ equity was primarily attributable to the acquisition of BNJ, which increased capital by $118 million. As of March 31, 2020, the Company’s tangible common equity ratio and tangible book value per share were 8.96% and $15.93, respectively. As of December 31, 2019, the tangible common equity ratio and tangible book value per share were 9.38% and $16.06, respectively. Total goodwill and other intangible assets were approximately $221 million as of March 31, 2020 and $168 million and December 31, 2019.

During the first quarter of 2020, the Bancorp repurchased approximately 55,000 shares of common stock leaving a remaining capacity of approximately 605,000 shares in the Board authorized program. Due to the COVID-19 pandemic, the Company has suspended repurchases of common stock during the COVID-19 pandemic.

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with Generally Accepted Accounting Principles ("GAAP"), ConnectOne routinely supplements its evaluation with an analysis of certain non-GAAP measures. ConnectOne believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors in understanding our operating performance and trends. These non-GAAP measures have inherent limitations and are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for an analysis of results reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of non-GAAP financial measures disclosed in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

First Quarter 2020 Results Conference Call

Management will also host a conference call and audio webcast at 10:00 a.m. ET on April 30, 2020 to review the Company's financial performance and operating results. The conference call dial-in number is 631-891-4304, access code 10009333. Please dial in at least five minutes before the start of the call to register. An audio webcast of the conference call will be available to the public, on a listen-only basis, via the "Investor Relations" link on the Company's website https://www.ConnectOneBank.com or at http://ir.connectonebank.com.

A replay of the conference call will be available beginning at approximately 1:00 p.m. ET on Thursday, April 30, 2020 and ending on Thursday, May 7, 2020 by dialing 412-317-6671, access code 10009333. An online archive of the webcast will be available following the completion of the conference call at https://www.connectonebank.com or at http://ir.connectonebank.com.

About ConnectOne Bancorp, Inc.

ConnectOne Bancorp, Inc., through its subsidiary, ConnectOne Bank offers a full suite of both commercial and consumer banking and lending products and services through its banking offices located across New York and New Jersey. ConnectOne Bancorp, Inc. is traded on the Nasdaq Global Market under the trading symbol "CNOB," and information about ConnectOne may be found at https://www.connectonebank.com.

Forward-Looking Statements This news release contains certain forward-looking statements which are based on certain assumptions and describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, those factors set forth in Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K, as filed with the Securities Exchange Commission, as supplemented by the Company’s subsequent filings with the Securities and Exchange Commission, and changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S.Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area, changes in accounting principles and guidelines and the impact of the COVID-19 pandemic on the Company, its employees and operations, and its customers. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Investor Contact:

ConnectOne's management believes that the supplemental financial information, including non-GAAP measures provided below, is useful to investors. The non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP financial measures presented by other companies.

(5) Tangible common equity divided by common shares outstanding at period-end.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN ANALYSIS

(dollars in thousands)

For the Three Months Ended

March 31, 2020

December 31, 2019

March 31, 2019

Average

Average

Average

Interest-earning assets:

Balance

Interest

Rate(8)

Balance

Interest

Rate(8)

Balance

Interest

Rate(8)

Investment securities (1) (2)

$

452,294

$

3,095

2.75

%

$

423,857

$

2,737

2.56

%

$

531,083

$

4,369

3.34

%

Loans receivable and loans held-for-sale (2) (3) (4)

5,956,469

73,220

4.94

5,153,715

65,118

5.01

4,907,683

60,597

5.01

Federal funds sold and interest-

bearing deposits with banks

148,429

499

1.35

60,705

242

1.58

57,690

357

2.51

Restricted investment in bank stock

27,316

400

5.89

25,261

409

6.42

26,478

457

7.00

Total interest-earning assets

6,584,508

77,214

4.72

5,663,538

68,506

4.80

5,522,934

65,780

4.83

Allowance for loan losses

(38,970

)

(39,094

)

(35,499

)

Noninterest-earning assets

560,489

460,163

421,626

Total assets

$

7,106,027

$

6,084,607

$

5,909,061

Interest-bearing liabilities:

Time deposits

1,962,714

10,371

2.13

$

1,533,425

9,573

2.48

$

1,515,249

8,303

2.22

Other interest-bearing deposits

2,660,755

6,841

1.03

2,348,752

6,699

1.13

2,236,630

7,048

1.28

Total interest-bearing deposits

4,623,469

17,212

1.50

3,882,177

16,272

1.66

3,751,879

15,351

1.66

Borrowings

477,121

2,352

1.98

452,837

2,431

2.13

486,687

3,024

2.52

Subordinated debentures (5)

128,913

1,834

5.72

128,830

1,839

5.66

128,585

1,845

5.82

Capital lease obligation

2,303

35

6.11

2,348

35

5.91

2,479

37

6.05

Total interest-bearing liabilities

5,231,806

21,433

1.65

4,466,192

20,577

1.83

4,369,630

20,257

1.88

Noninterest-bearing demand deposits

955,358

844,332

824,115

Other liabilities

54,622

41,910

35,148

Total noninterest-bearing liabilities

1,009,980

886,242

859,263

Stockholders' equity

864,241

732,173

680,168

Total liabilities and stockholders' equity

$

7,106,027

$

6,084,607

$

5,909,061

Net interest income (tax equivalent basis)

55,781

47,929

45,523

Net interest spread (6)

3.07

%

2.97

%

2.95

%

Net interest margin (7)

3.41

%

3.36

%

3.34

%

Tax equivalent adjustment

(500

)

(498

)

(571

)

Net interest income

$

55,281

$

47,431

$

44,952

_____________

(1) Average balances are calculated on amortized cost and includes equity securities.

(2) Interest income is presented on a tax equivalent basis using a 21% federal tax rate.

(3) Includes loan fee income.

(4) Loans include nonaccrual loans.

(5) Average balances are net of debt issuance costs of $1,240, $1,325, and $1,570 for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively. Amortization expense related to debt issuance costs included in interest expense was $82, $82 and $83 for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

(6) Represents difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax equivalent basis.

(7) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets.

TERMS AND CONDITIONS OF USE

The investor relations site ("Site") with which this document is associated is maintained by S&P Global Market Intelligence ("S&P") on behalf of the organization featured on the Site (S&P's "Client"). These Terms and Conditions of Use ("Terms of Use") set forth the terms on which you may use the Site, and the information and materials contained therein (the "Contents"). By using the Site, you agree to these Terms of Use. If you do not agree to these Terms of Use, you are not authorized to use the Site or Contents in any manner, and you should immediately discontinue any use of the Site or the Contents.

S&P and/or its Client shall have the right at any time to modify or discontinue any aspect of the Site or any part of the Contents. S&P may also modify these Terms of Use without notice. You agree to monitor these Terms of Use, and to cease all access or use of the Site if you no longer agree to abide by the Terms of Use. Your continued use of the Site shall constitute acceptance of such modification.

S&P and the Client grant to you a limited, personal license to access the Site and to access and download the Contents, but only for your own personal, family and household use. You may not use, reproduce, distribute or display any portion of the Site for any other purpose, including without limit any commercial purpose. You may use the Site and the Contents for lawful purposes only. S&P and Client reserve all rights not expressly granted, including the right to terminate your use of the Site without notice.

The Site contains copyrighted material, trademarks and service marks, and other proprietary information, including but not limited to text, software, and graphics, which materials are owned by S&P and/or its Client. S&P and Client reserve all rights in the Contents. You agree not to reproduce, distribute, sell, broadcast, publish, retransmit, disseminate, circulate or commercially exploit the Site or the Contents without the express written consent of S&P and the Client.

You agree to access the Contents and the Site manually, by request, and not automatically, through the use of a program, or other means. You agree not to take any action, alone or with others, that would interfere with the operation of the Site, to alter the Site in any way, or to impede others' access to and freedom to enjoy and use the Site as made available by S&P and S&P’s Client.

THE SITE AND THE CONTENTS ARE PROVIDED ON AN "AS IS" BASIS. S&P, ITS CLIENT, AND ANY OTHER PROVIDERS OF THE INFORMATION EXPRESSLY DISCLAIM ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF ACCURACY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

NEITHER, S&P, THE CLIENT NOR EITHER OF THEIR AFFILIATES, SHAREHOLDERS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, EXEMPLARY , PUNITIVE SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THE SITE, THE USE OF OR INABILITY TO USE THE SITE, OR THE CONTENTS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN PARTICULAR, S&P WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE CAUSED BY YOUR RELIANCE ON INFORMATION OBTAINED THROUGH THE SITE.

It is your responsibility to evaluate the accuracy, completeness or usefulness of any of the Contents available on the Site. Please seek the advice of professionals regarding the evaluation of any of the information on the Site.

The Site does not represent an offer or solicitation with respect to the purchase or sale of any security.

These Terms of Use are the entire agreement between the parties with respect to its subject matter, and it can be amended only via written agreement by S&P. These terms and conditions shall be governed by the law of New York, without regard to principals of conflicts or choice of laws.

ConnectOne Bank is not responsible for accuracy, security, content,
or services offered by other websites; we encourage you to view privacy
& security disclosures of all websites you visit as they may be
different than those of ConnectOne Bank.